Armchair Economists, Unite!

[FaustWolf]

An important talking point to use if you're as befuddled as I am by the sustained (and potentially growing) disconnect between Wall Street and Main Street.
Industries Find Surging Profits in Deep Cuts

Pure economic reasoning in a vacuum would allow one to see positives, or at least neutrality, in this: if Harley Davidson is making profits selling motorcycles while trimming its workforce, that's a signal that recently unemployed workers should gather together and build their own motorcycles to capture those profits away from Harley Davidson. I sincerely hope that happens. But in reality, basic legal, technical, market culture, and financial barriers are likely to keep Harley Davidson very safe, and hence the former motorcycle workers unemployed. Same goes for most other well established companies in highly developed markets.

It's a recipe for high long-term unemployment, and it makes me feel queasy.

[Lord J Esq]

I certainly understand why organized crime in this country has waned. They can't compete with the legitimate outfits. =/

My studies of economic issues in the past few months leads me to suspect that the voting public is even more ignorant than I had reluctantly assumed. Therefore, good and bad news: The bad news is that we may not be able to reform our economic system without violence or a depression, both of which would be bad news indeed. The good news is that, the more ignorant your populace becomes, the more susceptible they are to the Dumb Luck and the Smart Luck effects. Dumb Luck: The electorate may accidentally vote a flock of truly spectacular politicians into office at some point. Smart Luck: Liberal activists may successfully trick the electorate into the same.

Hold onto your pennies. The erosion of the middle class in this country will continue for the time being.

Lastly, I'm curious about what would happen if people consumed less; that is, if they bought less useless shit. Median incomes in this country can provide a very good quality of life, but only if one cuts out a great deal of one's purchases. That seems like something we should recommend everybody do, yes? It'd regenerate standards of living, improve quality of life, and ease environmental degradation and resource depletion. But...I'm not sure that it would actually regenerate the economy. It might even have a negative effect. If you're not buying useless shit, all those useless shit industries will go belly-up, taking with it a large hunk of national economic activity: production, jobs, and the like.

Economic success seems predicated upon growth; the net-zero economy under current paradigms promises only stagnation. We need to crack that nut, because economic growth in terms of raw industrial output has exceeded both environmental sustainability and human enjoyability (an epiphany of mine upon considering just how many people hire somebody else to do their gardening for them). I'm not saying the economy shouldn't grow any larger, but if it does then it should probably grow in a non-consumerist direction, with an emphasis on materials reclamation.

Does anyone with a good grasp of the relevant economic theories have any perspective to offer on this thorny dilemma? How do we halt or even reverse consumerism without tanking the modern economy? Soviet Russia proved that lack of access to useless shit will topple empires, yet in America's case "too much is never enough" (a longstanding wisdom of mine). Could it be that humanity is doomed to failure under the democratic model because too many of us have fatally contradictory impulses? Or have we simply yet to develop a culture where people can be raised to largely not possess such internal issues?

[FaustWolf]

Yeah, people cutting back on expenditures is part of what's going to keep the US economy and other economies down for some time. I don't think it's an inviolable natural law, just a lack of creative thinking and leadership where it's needed. We've got a ton of human capital laying around, and underemploying that human capital in the creation of "useless shit" seems kinda wasteful to begin with. We need to make "useful shit" marketable; failing that, maybe a government directive like a renewed Space Race, or some kind of community organizing...thing.

[FaustWolf]

Very interesting speech given by Bill Moyers (best known for his PBS journalism). This should be of interest to anyone looking into plutocracy especially.

Hmm, I still want to double check the figures he gives for average income levels in the US between 1980 and 2008. I've always focused on household incomes, and he's talking about individual incomes, so that could be why I found his numbers strangely low at first.

[GenesisOne]

Well, since I'm back, I said I'd be looking to stir some waters here in the Economists thread once more.

So, to help do so, I'm gonna pull back an old topic from earlier in this thread:



If it's not of any inconvenience, I'd like to treat this as a scholarly debate, with me being the moderator who provides the questions.

Let the discussion begin.  

[FaustWolf]

Are you welcoming opening statements, or did you want to narrow it down to a specific question about minimum wage policy first, Genesis?

[GenesisOne]

Both. As proof, I refer to a specific question I ran with earlier on this thread:

Should Minimum Wage Be Abolished?

I've prepared some pros and cons for the discussion. Simply pick one that piques your curiosity and expound on it.

Pros ("Yes" Answer):
- A low-paying job remains an entry point for those with few marketable skills.
- When you force American companies to pay a certain wage, you increase the likelihood that those companies will outsource jobs to foreign workers, where labor is much cheaper.
- Cost-of-living differences in various areas of the country make a universal minimum wage difficult to set.
- The minimum wage creates a competitive advantage for foreign companies, providing yet another obstacle in the ability of American companies to compete globally.

Cons ("No" Answer):
- Adults who currently work for minimum wage are likely to lose jobs to teenagers who will work for much less.
- Workers need a minimum amount of income from their work to survive and pay the bills.
- Businesses have more power to abuse the labor market.
- It forces businesses to share some of the vast wealth with the people that help produce it.

Who'd like to start first?

[Lennis]

There is no way you can abolish the minimum wage in this country.  (U.S.)  Our citizenry, especially middle-age and older, simply aren't educated enough to compete for a living wage.  Companies would hire younger, better educated people willing to work for less.  This would put an unacceptable burden on our youth, who would not only have to take care of themselves with barely adequate wages, but take care of their underemployed (or unemployed) parents as well.  This would have a notable impact on long-term demographics.  Young people carrying heavy financial burdens are less likely to have families of their own.  This would create an ever-shrinking labor pool that would have drastic effects on society.  Social Security and Medicare are certain to go bankrupt under this condition, and then you would have a sizeable underclass that would resort to crime and other forms of civil disobediance to protest their dire circumstances.

There is nothing to gain by abolishing the minimum wage and everything to lose.  We shouldn't even consider it.

[Thought]

Lennis, in jobs where minimum wage if a factor, education isn't.

Well, that's hyperbole. But the point is, a lot of jobs in the United States already pay well above minimum wage, largely because minimum wage isn't really a livable wage. However, you are right in that the net affect would be adverse: removing minimum wage would hurt poor individuals in population-dense areas (namely, cities). This would reduce the possibility of social mobility upwards from poverty to middle class, while seemingly not affecting the mobility downwards from middle to poverty (or potentially increasing it), ultimately leading to a shrinkage of the middle class.

As I had suggested before, if inflation could be avoided to an extent, a global minimum wage seems to be the way to go. There is no reason why only Americans (and other "Westerners") should be assured of a livable wage. This really should be expanded to most labor laws. I agree that everyone needs to be on equal footing, but the logical choice is to raise everyone up, not lower everyone down.

[GenesisOne]

So Lennis, am I to take it that yours is a "No" answer? Just wondering.

There is no way you can abolish the minimum wage in this country.

I wasn't asking if it was possible to abolish it or not. I asked if we "should" abolish it.


Now for your other points.

You talked about America’s citizenry, especially middle-aged would the most affected by abolishing the minimum wage. Research has been done in this area. A 1999 survey of small businesses by the Jerome Levy Economics Institute shows that raising the minimum wage would cause more than 20 percent of small-business owners to reconsider their employment decisions. Also, the Congressional Budget Office estimates the potential job losses associated with an increase in the minimum wage at roughly 200,000 to 600,000 jobs.

Imagine, if you will, restaurant employment. A manager might have $10,000 in her monthly budget to hire bus personnel. If the wage is set at $8 per hour, the manager may only be able to hire 10 bus people instead of 15.

Setting a mandated wage limit disrupts market forces of supply and demand. Just because there is no minimum wage doesn't mean companies can pay whatever they want. Would you work a dishwashing job that paid 25 cents per hour? Would anyone? If they raised the wage to $4 per hour, they might be able to hire a high school student. Consider some highly skilled jobs such as accountant, lawyer, and engineer. Do these people make $5.15 an hour? Obviously, the answer is no. Market factors of supply and demand determine how many jobs are available and what each job would pay. In summary, as the minimum wage goes up, the number of people employed goes down. When the minimum wage goes down, the number of people employed goes up. Keep in mind: the minimum wage only applies if someone is employed.

When you mentioned youth, I presume you meant teenagers or at least people less than 21 years of age. Youth is an umbrella term to describe the “under 21” work force in America. You also have to include workers-in-training, college students, interns, and part-time workers as well. I could argue that increasing the federal minimum wage would actually hurt the collective group of workers I have just mentioned, which brings me to another point that I neglected to include in the Pros and Cons area of my introduction, which is this:

Teenagers, workers in training, college students, interns, and part-time workers all have their options and opportunities limited by the minimum wage.

A vast majority of minimum wage jobs are taken by the groups named above. It is true that you cannot make a living and support a family on a minimum wage job. These jobs are typically positions requiring little or no training that can be filled by almost anyone. Many students, part-timers, and other young workers are willing to take much less than minimum wage, especially if it is a fun or educational job. For example, I am (for real) looking toward a prospect of becoming an intern at the Walt Disney Company as a way to break into the film industry, and I am hoping to do it on my hard-earned savings and not because of a government-mandated wage floor.

Having a paying job when you're young helps to teach values such as discipline, hard work, and responsibility. It teaches young workers how to handle money and deal with other people. Thus, as a society, we want to maximize the number of young people that work, even if it's for small wages. In fact, earning low wages provides extra motivation to go to college or acquire advanced job skills by some other method. Raising the minimum wage to $7 or more will definitely help some people trying to support a family, but it will hurt the group that holds almost all minimum wage positions. It will simply mean fewer low-skill jobs for those that actually need them. In some cases, however, this downside can be minimized by applying a multiple-wage structure, allowing a lower minimum wage if you fit into one of these groups.

More to come when time allows...

[Lennis]

So Lennis, am I to take it that yours is a "No" answer? Just wondering.

Unequivocally.  And from your thorough answer, you seem to be taking the opposite stance.

Setting a mandated wage limit disrupts market forces of supply and demand. Just because there is no minimum wage doesn't mean companies can pay whatever they want. Would you work a dishwashing job that paid 25 cents per hour? Would anyone? If they raised the wage to $4 per hour, they might be able to hire a high school student. Consider some highly skilled jobs such as accountant, lawyer, and engineer. Do these people make $5.15 an hour? Obviously, the answer is no. Market factors of supply and demand determine how many jobs are available and what each job would pay. In summary, as the minimum wage goes up, the number of people employed goes down. When the minimum wage goes down, the number of people employed goes up. Keep in mind: the minimum wage only applies if someone is employed.

I would say companies can pay whatever they want, at least in a high-unemployment environment where potential employees have very few options.  "Don't like the wage?  Tough.  We'll find someone desperate enough to take it and leave you with nothing."  Unless times are booming, companies have little incentive to increase hiring and thus increase the pressure on wages.  Of course, it's possible that employees may all balk at a ridiculous wage and leave employers in a difficult labor predicament, but it only takes one desperate soul accepting a bad deal to ruin things for everyone.

In fact, earning low wages provides extra motivation to go to college or acquire advanced job skills by some other method.

And what good is motivation if you don't have the means?  Simply wanting something bad enough doesn't mean you automatically get it, even if you work hard.  Be wary of conservative myths.  It's great when you hear stories about people rising up from absolutely nothing to succeed, but for every one of those success stories how many failures are there?  Funny how we never hear about them.

Raising the minimum wage to $7 or more will definitely help some people trying to support a family, but it will hurt the group that holds almost all minimum wage positions. It will simply mean fewer low-skill jobs for those that actually need them. In some cases, however, this downside can be minimized by applying a multiple-wage structure, allowing a lower minimum wage if you fit into one of these groups.

"To a dark place this line of thought will carry us.  Great care we must take."  Whether accurate or not, people affected negatively by this structure will cry discrimation.  It's one thing for different groups to pay different tax rates (which I oppose BTW).  It's quite another for different groups to be paid differing federally mandated wages.  I can't imagine any Congress willing to take such a political risk, regardless of whichever party is in power.

Despite these points, I largely agree with your answer - in an ideal world.  The problem is that the world isn't ideal.  The downtrodden won't rise up from the ashes in a cyclical pattern of failure leading to success and then perhaps back to failure.  Most of them will stay there without help.  The laws of supply and demand are among the most dispassionate principles in human thought.  The laws give no care to how many people may be hurt by following them rigidly, only that some people will profit and others will not.  Following strict supply and demand will undoubtedly produce winners, some of them unexpected, but it will also create losers.  Many many losers.  At the risk of being proven wrong, I'll stand by my previous answer until such time that someone can convince me that the gains of abolishing the minimum wage will outweigh the larger risks to society.

[Lord J Esq]

Truer words were never spoken!

Edit: That might be a little esoteric for obvious economic value. Let us ponder, therefore, the wise words of Johann Gambolputty-de-von-Ausfern-schplenden-schlitter-crass-cren-bon-fried-digger-dingle-dangle-dongle-dungle-burstein-von-knacker-thrasher-apple-banger-horowitz-ticolensic-grander-knotty-spelltinkle-grandlich-grumblemeyer-spelter-wasser-kurstlich-himble-eisenbahnwagen-guten-abend-bitte-ein-nürnburger-bratwürstel-gespurten-mitz-weimache-luber-hundsfut-gumeraber-schönendanker-kalbsfleisch-mittleraucher-von-Hautkopft of Ulm, who said it best without words in his immortal musical composition, noted across the continent, Etüde für die Benevolent Onderdonks und ihr Neues Haus des Kaffees. Now if you'll excuse me I have a talk to give at LORDJECON, the premier convention for economists adhering to the Gambolputian school of thought.

[FaustWolf]

"I pity the fool who tries to argue with...that dude from Ulm!"


Sometimes I wonder whether we're too socially trained to think in terms of minimum wages that we don't spend enough energy entertaining alternatives for ensuring equality of opportunity. Though I have a sneaking suspicion this pie won't be palatable to economic conservatives regardless of how you slice it.

After getting a taste of what entrepreneurship looks like in the digital age, I have started coming to the conclusion that traditional payment of wages - period - is going to be an innovation-stagnating factor going forward, at least in certain cases. Entrepreneurs have been getting the wheels rolling with their own sweat, blood, and tears since time immemoriam perhaps, but something interesting and perhaps somewhat new is happening now that they can combine forces with others, from a distance, at a near-zero startup cost. Since entrepreneurs need no capital to produce information beyond the carbohydrates that power their neurons, they have little to compensate anyone whose skill they might require to make their venture a success. It's a huge catch-22, and what it essentially means, currently, is that people with means are the only ones who can drive and participate in innovation.

I've never been entirely comfortable with the idea of a means-begets-means or opportunity-begets-opportunity system. I doubt it promotes maximum efficiency. Everyone, from the impoverished minority mom with two kids to the young buck born into a rich family, should be given the means to pursue their dreams and fulfill their ambitions if they're willing to put in the work. A little tear slid from my eye when I found out my university is starting to dispense grants to students who take unpaid internships. Those grants currently aren't living wage grants; but nevertheless, it got me thinking about the potential benefits of providing a living wage without necessarily placing that burden upon private businesses, and the efficiency effects that might accrue. Upping the ante on this concept, of course, will require very direct government intervention in the form of income transfers.

I am, of course, sidestepping the whole debate over whether we should pursue a "minimum" wage versus a "living" wage as the target wage floor to begin with. Another question I'm rocky on is, supposing we prop up startups through income transfers or some kind of earned consumption vouchers, how do we measure the societal worth of those ventures, and how do we determine when to turn off the support spigot, as it were?

[Lord J Esq]

...how do we measure the societal worth of those ventures, and how do we determine when to turn off the support spigot, as it were?

That's one of the great questions, and challenges, of a golden society. Even the debates on the definition of the word "worth" would be endless (assuming a democracy), let alone the debates on the most ideal subsequent implementation of that rubric. I can propose some generalities, though:

1) The level of comfort people show toward a given policy;
2) The level of environmental degradation and resource depletion it causes;
3) The extent to which it encourages the development of key human virtues;
4) The extent to which it directly or indirectly promotes an increase in the quality of life for people.
5) The reverse of (4).
6) The extent to which it fosters social cohesion or division, and the issues around which these fault lines coalesce.

[GenesisOne]

Also side-stepping the minimum wage debate (for now, anyway).

So the other day, President Obama fulfilled his Constitutional duty by giving the report of the State of the Union. Personally, I wasn't all that impressed with it. Some parts of his speech were simply repeated snippets from previous SOTU addresses given by previous presidents (e.g. cutting dependency from foreign oil). Then there were the parts he brought up of making cuts to government spending. Reason why?

Our country's debt has passed $14 trillion, and yet our current spending plans will make that worse. The U.S. debt will reach Greek levels in just 10 years. For those unfamiliar with the reference, Greek citizens rioted when they learned that their gross-to-debt ratio of their GDP was about 115%, and the CBO projects it to reach 140% within the next two decades. The United States will probably not face the same kind of crisis as Greece, for all sorts of reasons. But the basic problem is the same. Both countries have a bigger government than they’re paying for. And politicians, spendthrift as some may be, are not the main source of the problem.

We, the people, are.

We have not figured out the kind of government we want. We’re in favor of Medicare, Social Security, good schools, wide highways, a strong military — and low taxes. Dealing with this disconnect will be the central economic issue of the next decade, in Europe, Japan and the U.S.

The cuts that President Obama spoke about  were meager at best. Cutting corners simply isn't enough for our growing debt. We need to make really deep cuts. Cutting doesn't just make economic sense, it is also the right thing to do. So what cuts do we have in mind? I've got quite a few to toss on the table, and feel free to debate these points. I'm interested in what you have to say about what should stay and what should go.

Here's the list of cuts that I'd like to see made:

- Close the Department of Education
- Close HUD (Housing and Urban Development)
- Close the Commerce Department (Free trade to them is an oxymoron)
- Eliminate corporate welfare and subsidies (including agriculture, green energy, public broadcasting)
- Privatize mass transportation, at least in urban dwellings (e.g. trains, buses)
- Privatize Social Security and Medicare
- Repeal government interference in medicine and insurance, especially licensing

I believe in Jeffersonian politics, which is "the government which governs least governs best." He also said that we should embrace "a wise and frugal government, which shall leave men free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned--this is the sum of good government."

@FaustWolf: You're right in saying that entrepreneurs need very little to start their own business, but there is one thing that's keeping most good entrepreneurs from surfacing: government regulation. Our economic growth has stalled because millions of pages of regulations make businesses too fearful to invest. Entrepreneurs have a slim chance of knowing (or probably won't even know) what the rules --or taxes--will be tomorrow. This discourages hiring.

What says you about this?